How to Explain Bitcoin to Your Clients Without Sounding Like a Dinosaur

Unless you’ve been living under a rock, you’ve read stories in the media about impossible sounding returns; 1,000% in one week! $10 million from a $1000 investment!

Since the market is so hot, the question is not if your clients are going to ask you about bitcoin, but when. The only problem is that bitcoin is well…there’s no other way to say it—confusing. Don’t worry though. Even people who are so-called experts in the field can have a hard time explaining it.

In order to help you sound a little more informed, we put together this handy cheat sheet. Pin it to your favorite Pinterest board or look it over before calling that software developer who hit you up on Zillow. Who knows, she may even share a sweet crypto investing tip.

Can My Buyers Purchase a Home With Bitcoin Yet?

Yes. However, almost all real estate transactions using bitcoin have used a service called bitpay to convert bitcoin to USD to transfer funds to the seller.

That said there have been a few “bitcoin to bitcoin” transactions. For example, a two bedroom condo sold for 17.741 bitcoin, the rough equivalent of $275,000 in cash. Both buyer and seller were represented by Brown Harris Steven’s Stephan Burke and Carol Cassis.

As far as an “bitcoin to bitcoin” transactions where title changes hands and the bitcoin is never converted into USD, we’re still not quite there yet. The sticking point is generally title companies and lawyers, both of whom are still somewhat reluctant to take the digital currency.

Where Bitcoin and blockchain show the most promise is for overseas transactions.

Over at the always excellent Mansion Global, EminGun Sirer, associate professor of computer science and co-director of the Initiative for Cryptocurrencies and Smart Contracts at Cornell University, weighed in on why crypto currencies are ideal for foreign buyers:

“Cryptocurrencies enable the quick, frictionless transfer of value across the globe, This enables someone in Russia to be able to easily send bitcoins to purchase land in Belize.”

Should I Advise my Seller Clients to Accept Bitcoin?

In today’s market, Bitcoin may not be ready for prime time, but there is one thing that is undeniable. Offering your listing for sale in Bitcoin will get you instant free press. Remember the first listings that had drone videos? Imagine that times ten. Here’s Seattle Realtor Sam Debord on the current state of Bitcoin sales:

“I’ll sell my house for bitcoin” is the latest marketing tactic, and it’s working… at least for publicity.”

In order to accept bitcoin, you can either have the seller transfer into USD, work with a title company that will accept bitcoin, or have a lawyer write up a contract that covers all risks from bitcoin. At this point, most people will avoid actually paying in bitcoin, but the free press might be a good trade off.

Can my Buyers Get a Loan with Bitcoin?

Yes. Startups like Unchained Capital allow people who hold bitcoin to borrow up to $1 million with no credit check and interest rates between 10% and 14%. However these are not long term loans, Unchained offers loan lengths ranging from 3 months to three years.

While not for everyone, hardcore bitcoin owners use services like this to get quick liquidity without cashing in their bitcoin portfolios. Think down payments, or maybe even bridge loans.

There Must be a Catch… is There Capital Gains Tax For Transferring Bitcoin to USD?

Yes. As of January 1st, 2018 the federal government considers cryptocurrency as property and anyone selling (or trading bitcoin for US dollars) will be hit with capital gains tax on the amount their bitcoins appreciated since they purchased or mined them.

Are Bitcoin and Blockchain The Same Thing?

No. While Bitcoin is a digital currency that you can exchange for goods and services, blockchain is the underlying technology that stores Bitcoin or other cryptocurrency transaction in a digital ledger.

Okay, Then What is Bitcoin Exactly?

Glad you asked! Bitcoin is a fully digital currency created in 2009 by an anonymous person who goes by Satoshi Nakamoto online. Like any other currency, bitcoin can be used to pay for goods and services, transfer funds, or as an investment. Currently, over 10,000 vendors accept bitcoin, from Microsoft and Expedia to small businesses.

The main difference between bitcoin and say, an ACH transfer through a traditional bank, is that there is no middleman in the transaction. The entire transaction from buyer to seller takes place on the bitcoin network. Since a bitcoin transaction bypasses the different bank policies, or different regional banking laws that are part of any other transaction, transfers are much quicker.

Since there is no bank or government to get in the way, Bitcoin can be a great way to transfer money or make purchases overseas. Foreign buyers may find bitcoin’s speed and simplicity ideal for buying property in the United States.

Bitcoin is an example of a fiat currency; its value is not backed up by gold or another tangible asset. Instead, Bitcoin relies on something called Blockchain to verify transactions.

Got it. So What’s Blockchain?

Although blockchain is very complex, the best way to describe it to your clients is to compare it to ACH, the technology that lets you “wire” money from one bank to another. The main difference is that blockchain does not rely on banks to verify transactions have been completed. Instead, once a transaction is completed it is stored in an encrypted digital ledger that is distributed among everyone on the blockchain.

What makes blockchain so powerful is that the ledger is stored on every single computer (node) in the system. This makes faking a transaction virtually impossible. Since the blockchain is extremely secure, it has many applications beyond verifying and storing bitcoin transactions. Everything from contracts to voting records can theoretically stored on blockchain.

Which Technology Will Have a Bigger Impact in the Real Estate Market, Bitcoin or Blockchain?

For most experts, blockchain will have a bigger impact on real estate than Bitcoin or other cryptocurrencies. Here’s why: Transaction speed is not a very pressing problem for real estate transactions, but record keeping and middlemen are. Here’s Jason Shepherd, co-founder of Atlas Real Estate Group on why he thinks blockchain technology, particularly smart contracts and other applications built on Ethereum, will change the real estate market:

“It is important to separate the cryptocurrency from the underlying blockchain technology when discussing real estate disruption…The disruption in real estate will come from the blockchain technology (distributed ledger) and smart contracts like those found on the Ethereum platform.”

Awesome! So What Are Smart Contracts?

Smart contracts are contracts between two parties that are verified and stored on the blockchain. Today, most smart contracts are built with the blockchain protocol behind Ethereum, another cryptocurrency.

The main benefit behind smart contracts is that there is no need for a middleman in the transaction. Everything is verified and stored on the blockchain.

In the future, blockchain can be used to store records of a transaction all the way from a blockchain enabled MLS, to escrow, inspections, title, and sales contracts. Leases, and other commercial real estate contracts could also be on the blockchain.

While smart contracts haven’t yet hit the mainstream for real estate, startups like Propy and Ubiquity.io are changing that.

To learn more about smart contracts, check out this excellent guide over on Block Geeks.

Sweet! What is This “Mining” for Bitcoins I Keep Hearing About?

Okay, from here on in, the process gets a bit more technical, and harder to explain. Remember how we talked about how transactions on the blockchain are verified by other users? Well, Bitcoin mining is the process that verifies transactions and adds them to the public ledger. If you’re looking for a more thorough explanation of the process check out Duncan Elm’s great (and easy to understand) video on the process below:

Bitcoin Explained from Duncan Elms on Vimeo.

What Advantages do Other Cryptocurrencies like Ethereum, Litecoin or Ripple Have Over Bitcoin?

Okay, now we’re getting a little too far into the weeds. Worse, the crypto industry changes so fast that by the time you read this something will have inevitably changed. If you’re feeling brave, check out this cool infographic from Visual Capitalist:

Where 12 Real Estate Experts Think Bitcoin is Heading

1. EminGun Sirer, professor and co-director of the Initiative for Cryptocurrencies and Smart Contracts at Cornell University

“Cryptocurrencies enable the quick, frictionless transfer of value across the globe, This enables someone in Russia to be able to easily send bitcoins to purchase land in Belize.”

2. John Gilbert, Co-founder/Director Prime-EX

“The acceptance of cryptocurrencies into mainstream investment portfolios equals more buyers this year for major ticket items, such as houses. Many purchases are coming from people who have never purchased real estate before. This equals more sales for real estate agents who are willing to learn about cryptocurrencies, more sales for real estate agents who are willing to market to people who are invested in cryptocurrencies, and more sales for real estate agents who are willing to specialize in educating their home sellers on how to accept cryptocurrencies as payment in kind for their real estate.

The cryptocurrency genie will not be put back into the bottle. ”

3. Avani Desai, CEO and Co-Founder of MyCryptoAlert

“Crypto will allow a home buyer to gather funds quickly, sometimes in less than 60 seconds, and into the hands of seller, instantaneously. All of this is done on the blockchain so the transaction is recorded in an open distributed ledger using encryption techniques that ensures that a transaction was complete and accurate can never be retroactively changed.

I believe what brokers and agents are going to see aside from transactions being done with crypto are technology platforms that are build on the blockchain. Therefore, understanding the two most known and build on blockchains that are out there – The Bitcoin Blockchain and the Ethereum Blockchain in crucial. Agents will see everything from smart contracts executed, title storage, to international money exchanges.”

4. Jason Shepherd, co-founder of Atlas Real Estate Group

“The disruption in real estate will come from the blockchain technology (distributed ledger) and smart contracts like those found on the Ethereum platform. The escrow process will be replaced by a smart contract, using code as the intermediary to distribute earnest money.
Imagine a real estate transaction where all of our inspection and due diligence information can be found in one pubic ledger on the blockchain; ownership, encumbrances, repair receipts, improvements, liens all viewable and indisputable on the distributed ledger. This transparency reduces the need for title insurance and truncates the purchase timeline for a home from 30 days to a few days. Title and Escrow will be the first layer of disruption but increasing transparency will allow the public to access more information and less reliant on real estate brokers, this won’t replace brokers but it will warrant a repricing for what brokers can charge their clients.”

5. Sam Debord, Managing Broker, Seattle Homes Group

““I’ll sell my house for bitcoin” is the latest marketing tactic, and it’s working… at least for publicity.

Most of the transactions I hear about involve bitcoin being used as proof of funds, and then converting it to cash before closing. Not so far off from a traditional sale, we’re seeing FNMA mortgage pre-approvals with cryptocurrencies used as verified assets, as equity in other securities would be. The final sale is conducted all in dollars, so “bitcoin sale” is a bit of a misnomer.”

6. Alan Lewis, Chief Investment Officer at DiversyFund

“We are already seeing real estate sellers finding creative ways to accept crypto from a buyer in order to expand the pool of potential purchasers. As a real estate investment platform, our online customers have prompted us to look into accepting crypto and also launch an Initial Coin Offering (ICO) that is backed by real estate assets, which creates a perfect marriage of old and new asset classes.”

7. In Order to Close Deals with Crypto, You Need to Find the Right Team

Sheryl Lowe, Broker Associate, Kuper Sotheby’s International Realty

“In all of my 33 years of closing transactions, I honestly couldn’t have expected something so unique to go so smoothly. In a matter of 10 minutes, the Bitcoin was changed to US Dollars and the deal was done! Of course, it helped to have the right team behind this – Laura Pagnozzi of Independence Title was a key player in keeping everything together.”

8. Hyun Lee, Communications & Marketing Director, Mothership Foundation

“With Ethereum, there are companies that wish to build smart contracts around existing services including real estate. This allows for a fully digital real estate transaction.

In fact, the first real estate transaction using only the ethereum blockchain already happened. Michael Arrington, co-founder of TechCrunch, recently purchased a Kiev studio apartment for $60,000 via smart contracts on the ethereum blockchain.

In this case, the smart contract allowed the sale of the property – if this template was to be copied and applied to all future sales, I would imagine real estate agents would need to pick up on using smart contracts.”

9. Dr. Lucas Lu, Founder/CEO, 5miles

“Fractional ownership. The high cost of home ownership in more and more markets has priced out many potential home buyers, leaving them on the sidelines. Just as USD can be bought and sold in fractions, in a similar way the number of whole BTCs, for example, has a limit and can be used fractionally. This means that cryptocurrency holders can see the value of their currency rise, but also can pool their crypto resources with owner to purchase properties collectively, as investments.”

10. Matt Miles, the Co-CEO of Aperture/ Property Coin

Blockchain public records systems

Updating/ unifying a records keeping system for recording title and transfers of ownership. What would be really interesting is if someone used blockchain vehicles to be the registered property owner, thereby saving on local transfer fees.

11. Aziz Bin Zainuddin, founder and Chief Crypto Officer of Master The Crypto

“You are already starting to see major real estate developers such as Magnum Real Estate Group, the Knox Group, and many others accept BTC as a form of payment for real estate transactions. For example, in early Q4 2017, a 250 million pound residential project launched in Dubai that spans almost 2.5 mm square feet with over 1,000 apartments that will accept BTC as a form of payment; which is super exciting as you are seeing major developers hop on board the crypto market.”

12. Tristan Ahumada, Realtor, speaker co-founder of LabCoatAgents

“So far, most of the Bitcoin transactions in the Real Estate world have had only one party dealing in cryptocurrency and the other one doing it the traditional way. The deal can still take place, but the cryptocurrency has to be turned into cash. I do envision cryptocurrency catching on more, but our society has to start using the Bitcoin/Blockchain technology more. I do see it becoming normalized– it’s just a matter of people getting used to it—it is just as easy as people using credit cards and Apple pay.

For now, there are companies like BitPay and some other international banks that allow people to convert their Bitcoin into cash.”

My Takeaway

No matter how much you fight it, Bitcoin and the blockchain technology it runs on will revolutionize the real estate industry. This industry is moving faster than any recent technology that I can remember so keeping informed on new innovations and regulations is key.

Useful Real Estate Bitcoin & Cryptocurrency Links

Here are a few useful links to stay informed and avoid sounding like a dinosaur.

Coin Desk

Bitcoin Magazine

Tech Crunch

Bitcoin & Cryptocurrency Resources on Reddit:

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The business potential of the blockchain network says:

December 29, 2018 at 1:59 pm

[…] a lawyer or a notary. With blockchain technology, backed by smart contracts, you can theoretically purchase a house from the other side of the globe, without ever seeing it, signing a contract on paper or meeting with the current […]